The architecture of power market
Student name: Mr Puru Gupta
Guide: Mr Soumendu Sarkar
Year of completion: 2014
Host Organisation: TERI University
Abstract: The efficient functioning of a power market depends on its underlying architecture. A notable
aspect of power market design which forms the basis for differentiation among various designs is
the extent of reliance on markets. In the absence of a standard design and in view of differing
social, political, economic and technological conditions several alternatives are possible which
range between the two extremes. One of them is termed the integrated approach with greater
authority resting with the State, the other being the unbundled approach which seeks to maximise
the role of private markets with the role of the State reduced to managing transmission and
facilitating private markets. We study the efficiency properties of these two different approaches.
We show that the integrated approach is likely to result in an inefficient allocation even with
complete information. These inefficiencies vary proportionally to the size of the market. We also
show that the unbundled approach results in inefficient equilibrium outcomes on account of
strategic behaviour by market participants under incomplete information, but these inefficiencies
vary inversely with the size of the market.
Keywords: Power Market, Multi unit Auction, Computational Complexity.
